Hong Kong company reporting season

Postal Savings Bank’s first post-listing profit beats estimates

Bank also announces that it will raise up to 50 billion yuan of further capital via a private placement

PUBLISHED : Saturday, 25 March, 2017, 7:25pm
UPDATED : Saturday, 25 March, 2017, 7:25pm

Postal Savings Bank of China’s 2016 net profit rose 14 per cent from a year earlier, delivering its first set of post-listing financial results that beat analysts’ estimates.

The bank, operating China’s largest branch network of savings banks, reported 39.78 billion yuan (US$5.78 billion) in net income, compared with the 37.67 billion yuan expected in a Bloomberg poll of analysts.

The bank said that the profit growth had been achieved by proactively expanding its customer base and exploring new sources of non-interest revenue.

The bank also announced that it would look to raise a further 50 billion yuan to replenish its capital via a private placement. Analysts at Jefferies had said before the announcement that were the bank to expand its balance sheet quickly, further capital raising would be likely, as PCSB’s capital ratio was thinner than its peers.

PCSB has much opportunity for expanding its balance sheet as its lending, particularly corporate lending, lags behind its competitors. The bank was only established in 2007, and only began offering loans and other services to corporate clients in 2009 and 2010.

Postal Savings Bank of China’s total assets increased by 0.97 trillion yuan in 2016, or 13.28 per cent, to stand at 8.27 trillion yuan.

However, this rapid expansion brings with it risks, and Chen Shujin and Alfred He, analysts at Huatai Research said they thought that the bank’s bad loans were likely to increase further in the coming two to four years “following [PCSB’s] rapid loan book expansion, especially in central and western China.”

The bank’s 2016 non-performing loans rose faster than its total lending, and the bank’s NPL ratio stood at 0.87 per cent at the end of December. This is significantly better than the industry wide figure of 1.78 per cent -- Postal Savings Bank has not been lending for as long, so there is less time for loans to go bad -- but still a 7 basis point increase since the end of 2015.

Analysts tend to view the bank negatively. Jefferies banking analysts, Victor Wang, Jeremy An and Grace Li describe it as being their least favoured among the 10 banks they cover, and of the 13 banks covered by Huatai Research, China Postal Bank is the only bank for which Chen and He have a “sell” rating.

“We are cautious on PSBC due to its high actual funding cost, its loan growth slowdown under stricter

regulation, potential rising NPL formation,insufficient provision, and relatively weak capital,” said Chen and He.

PSBC was listed last year in Hong Kong, in the world’s largest IPO in two years. At the close of trading on Friday, the bank’s shares were trading at HK$4.82 a share. This was just 1 per cent higher than its price at listing, but a substantial recovery from declines at the end of last year.

“As I would assume all of the short term IPO investors are out by now, the longer-term holders have steadied the stock above IPO price and I would imagine the stocks trading higher from here with the group,” said Brett McGonnegal, chief executive of Capital Link International.

On Friday China Merchants Bank also published its annual results. Net profit was up 7.6 per cent to 62 billion yuan, though non-performing loans rose by 29 per cent. China Merchant’s bank’s NPL ratio stood at 1.87 per cent at the end of December.